Newsletter

Posted July 30, 2009 06:00 am

Associated Press

Microsoft, Yahoo to face tough antitrust probe

WASHINGTON --- The Internet search partnership between Microsoft and Yahoo faces a tough antitrust review in the U.S. and overseas, with approval likely hinging on whether the marriage would foster more competition with market leader Google.

The deal might have a better shot at success than the proposed pact last year between Yahoo Inc. and Google Inc. That agreement fell apart after the Justice Department threatened to block it, ultimately leading Yahoo to revive talks with Microsoft Corp.

Yahoo's alliance with Microsoft could have an easier path because antitrust regulators are tougher on deals involving the top two companies in an industry, said Evan Stewart, an antitrust lawyer at Zuckerman Spaeder.

Even so, a key lawmaker on antitrust issues said Wednesday that the agreement "warrants our careful scrutiny."

Sen. Herb Kohl, a Wisconsin Democrat, said lawmakers would review the deal "because of the potentially far-reaching consequences for consumers and advertisers and our concern about dampening the innovation we have come to expect from a competitive high-tech industry."

"I'm expecting tough scrutiny in the U.S., and even tougher" in the European Union, said Herbert Hovenkamp, an antitrust law professor at the University of Iowa. He noted that European regulators have historically taken a harder line against Microsoft than their U.S. counterparts.

A key issue, according to Mr. Hovenkamp, will be whether regulators accept Microsoft CEO Steve Ballmer's argument that the deal will create a stronger competitor against Google.

"In the past, that defense hasn't worked all that well," Mr. Hovenkamp said, and courts have shot down deals between the second- and third-largest players in other industries.

But Mr. Stewart said the deal should pass muster because it will provide "real competition" to Google.

PRIVACY WORRIES

Privacy advocates came out against the Microsoft-Yahoo agreement.

The Center for Digital Democracy, an online privacy advocate in Washington that opposed the Google-Yahoo partnership last year, called for an examination of the partnership's consumer data collection policies, along with privacy and online ad business practices.

The U.S. Public Interest Research Group also came out against the deal, as it had the Google-Yahoo partnership.